Question

6. In 2013 Barry purchased for $12,000 a classic car that he planned to restore. (The car needed a lot of work). However, Barry was too busy to work on the car so he decided to and did transfer the car to his daughter Victoria in 2016 as a gift. At the date of the gift to Victoria, the fair market value of the car had declined to $10,000. Victoria completed some of the restoration herself with an out-of-pocket cost to her for materials of $5,000. She sold the car on June 1, 2019 for $30,000. How much was Victoria’s recognized gain or loss on the sale of the car?

                a.             $0

                b.             $13,000

                c.             $15,000

                d.             $18,000

7. On December 15, 2018 Ralph gave his daughter, Barbara, stock that had an adjusted basis to Ralph of $8,000 and a fair market value on the date of the transfer of $6,000). Ralph paid a gift tax attributable to this transfer. Barbara sold the stock on June 19, 2019 for $10,000. How much was Barbara’s recognized gain and the character of the gain?

                a.             $2,000 short-term capital gain

                b.             $2,000 long-term capital gain

                c.             $4,000 ordinary income

                d.             $4,000 short-term capital gain

                e.             We need to know the amount of the gift tax paid by Ralph in order to answer this question.

8. Sally, mother of Tally and Wally, owned 100 acres of undeveloped land when she died on October 1, 2012. Sally had acquired the land in 1978 for $20,000. Sally’s Will was admitted to probate, and the Will specifically devised the 100 acres of undeveloped land to Sally’s children Tally and Wally, as tenants in common. No estate tax return was required to be filed but several appraisals were acquired which all concluded that the fair market value as of the date of Sally’s death was $300,000. Tally and Wally both survived Sally, and the land was distributed to Tally and Wally in 2013 when the property was still worth $300,000. Tally and Wally did not make any improvements to the land, and in 2018, Wally transferred Wally’s undivided one-half interest as tenant-in-common to Tally. At the date of the transfer to Tally, the fair market value of Wally’s undivided one-half interest as tenant in common was $800,000. After the transfer, how much is Tally’s basis in the 100 acres of undeveloped land?

                a.             $300,000

                b.             $550,000

                c.             $950,000

                d.             $325,000

9. Jack inherited a house from his father, Zack, on the death of his father, in January 2016. A Federal estate tax return was filed and the value of the land as finally determined for Federal estate tax purposes was $300,000 (the property’s fair market value at the date of the death). Zack had acquired the house in 1958 for $19,000 and prior to Zack’s death had made permanent improvements of $50,000. How much is Jack’s basis in the land?

                a.             $19,000

                b.             $69,000

                c.             $300,000

                d.             $369,000

10. Charlie owns a tract of undeveloped land held as an investment that has an adjusted basis to Charlie of $145,000. If Charlie sells the land to his son, Otis, for $105,000, the fair market value of the property, which of the following is a correct statement as to Otis’ basis in the land?

                a.             Otis’ basis in the land is $105,000.

                b.             Otis’ basis in the land is $105,000 provided that Otis does not sell the land within two years after the date that the land is transferred to Otis.

                c.             Otis’s basis in the land is $145,000.

                d.             None of the above is correct since this transfer is considered part gift part sale.

Answer 1

6. Sale proceeds = 30,000

Adjusted basis = 12000+ 5000 = 17000

Realized gain = 30,000 - 17000 = 13000

Option b, $ 13000

7. Option e,We need to know the amount of the gift tax paid by Ralph in order to answer this question.

8. Option a, $300,000 [The fair market value as on the date of transfer is deemed to be the basis]

9. Option c, $ 300,000

10. Option a, Otis’ basis in the land is $105,000.